Yahoo is a major Web destination, with 165.1 million unique visitors in July, according to ComScore Media Metrix. That's behind only No. 1 Google, which had 191 million visitors. It also earned 10% of all search engine activity in June and July, the research firm said, with Google and Microsoft getting 67% and 19% respectively.

But in the '90s it was the top portal for Web surfers. The ascendance of Google (GOOG) and Facebook (FB) has cut into Yahoo's clout — and its advertising revenues.

"Yahoo has seen well-discussed erosion in its core business and its core brand," Frank says. "But with that kind of cash (from the Alibaba IPO), not only does it make their shareholders happy to get some of it back, but it could permit them to diversify in a number of ways and become transformed into something like a media conglomerate rather than a company that is focused on one flagging brand."

Among the prospective targets for turning around Yahoo's core business will be acquisitions related to mobile and daily online interactions, he says, as well as snapping up or funding original content.

“How is that Tumblr deal working out? Was it a good use of a billion dollars? It might not be. And remember Geocities?”

Colin Gillis, analyst

But Yahoo must be smart and not fritter away the Alibaba windfall on poor acquisitions, Gillis says. "You want to be efficient with it," he says. "If you are going to try to turn the company around, this is your resource to do it."

Over the last several years — including the hiring of former Google exec Marissa Mayer as its CEO two years ago — Yahoo has attempted to regain pre-eminent standing among the Internet heavy hitters. Among the acquisitions meant to help reshape the company: 2013's $1.1 billion deal for social media site Tumblr and, earlier this year, mobile messaging app Blink and mobile analytics firm Flurry, both for undisclosed figures.

"Some investors are worried," Gillis says. "How is that Tumblr deal working out? Was it a good use of a billion dollars? It might not be. And remember GeoCities?"

Yahoo acquired GeoCities, a Web page-hosting company, for about $4 billion in 1999 and shuttered it 10 years later — one of its many poor investments.

But the Alibaba investment could push all those bad memories aside. Back in 2005, at the behest of co-founder Jerry Yang, Yahoo paid $1 billion for a share in Alibaba. While Yang, the onetime CEO who left the company two years ago, "has had a sort of mixed legacy, one thing he got right was investing in Alibaba," Frank says. "It has been a fantastic investment for them."

In fact, Alibaba has become the biggest asset for Yahoo, which has a market cap of about $39 billion. Yahoo's "core is something around $8 billion," Gillis says. "A huge chunk of the valuation is Alibaba."

The headquarters compound of Alibaba Group in Hangzhou in eastern China's Zhejiang province.(Photo: AP)

Alibaba handles about 80% of China's e-commerce, and its sales surpass that of eBay and Amazon combined. The sales that Alibaba processes are "staggering," says Scot Wingo, CEO of ChannelAdvisor, a leading cloud-based e-commerce provider that includes Alibaba's Tmall sales network among its international offerings.

The world's financial exchanges attempted to woo Alibaba, but the company chose the New York Stock Exchange. Details about the IPO are coming out as Alibaba begins its "road show" this week to meet with investors.

BIGGEST TECH IPO

The deal could raise upwards of $20 billion, based on current estimates from Renaissance Capital. That would eclipse not only Facebook's $16 billion IPO from May 2012 but also the $17.9 billion deal for payment-processing company Visa in March 2008.

Yahoo is committed to returning at least half of the after-tax proceeds from the IPO to shareholders, Chief Financial Officer Ken Goldman said in July when the company released its second-quarter earnings. That could mean stock buybacks or a special dividend with the company's upcoming earnings, Gillis says.

Beyond that, Goldman said, "We have acquired some companies in the past, and to the extent that we think that makes sense in the future, and we think that would be positive for shareholders, we want to have the ability to do that."

The challenge remains that any prospective acquisition will likely be targeted by others, too. "Think about the environment. What company can Yahoo buy that Google or Facebook or Apple couldn't pay more for if they wanted to? And if you are a seller, who would you rather join?" Gillis says. "It makes it hard to buy your way into a turnaround."

With the Alibaba IPO approaching, Yahoo's stock has climbed over the last two months, surpassing its 52-week high of $41.72 by closing Monday at $41.81.

Some analysts have advised buying Yahoo stock ahead of the Alibaba IPO, since getting actual shares of Alibaba will be difficult for individual investors.

But Net marketing expert Ken Wisnefski suggests treading carefully because he expects Yahoo will remain revenue-challenged in its core business.

"I feel that the purchase of Yahoo at this point wouldn't be prudent," says Wisnefski, who founded digital marketing WebiMax. "I don't feel strongly that Yahoo has true staying beyond this immediate bump."